Short Circuited

The seed of the destruction of the market economy that predominated until the early 21st century was planted in a 50-year-old press release from the electronics retailer Circuit City.

As was common in this dark period of our economic history, the firm announced a restructuring, claiming that the proposed changes would position them to make "improved and sustainable returns in today's marketplace." Part of the plan was to lay off 3,400 sales workers -- again, not unusual, as restructurings often involved "layoffs." (Younger persons will not recognize the word -- it was a practice wherein people were told they no longer had a job).

What was so unusual about this announcement, however, was Circuit City's claim that they were going to replace the laid off workers with lower wage workers (yes, back then employers simply decided what they would pay their workers).

Given the times, their rationale for making big changes made sense. Their "stock price" (don't ask -- it was a complicated form of legalized gambling) was off by a third. But, despite their claims to the contrary, their workers already made the pretty low market wage of about $11.50 and hour, and it was clear at the time their tactic was a recipe for lousier service, fewer sales, and lower profits. After an initial bump, their stock prices sunk further, and they soon were out of business.

What's amazing here, and so revealing about the ultimate demise of the market economy, is that the firm though it was a good idea to advertise this practice. They were a retailer, with stores in people's neighborhoods, not some behind-the-scenes player. Did they really think this was the message consumers wanted to hear? Did they really believe people would shop at a place where their fellow citizens were treated this way?

From our secure vantage point of today, we view this as a good example of the economic corruption of the earlier regime. What Circuit City did was not illegal, but it was immoral. Traditional economists at the time believed that the invisible hand -- the underlying forces of the free market system -- guided society to the most efficient outcomes, which also tended to be the most just outcomes. We now recognize that when firms can act in this manner, that pristine result is unachievable.

It was a small case, but it contained the seed of the destruction of all that was good and productive about the old market economy.

It helps us see clearly how the capitalists killed capitalism. Somehow they failed to recognize that the concentration of income -- in 2005 the top one percent of households controlled 22 percent of all income, the highest since 1929 -- was politically unsustainable. The unabashed free-trade advocates, by denying any downsides to globalization, sowed the seeds of protectionist measures that divided nations and killed the benefits of trade. The rabid opponents of social insurance, safety nets, minimum wages, and unions made it impossible for workers to claim their fair share of growth and gave rise to a level of economic insecurity amid growth that sealed those opponents' own dismal fate.

Now, through our MRS (massive redistributive system), the top one percent controls one percent of national income. We all have jobs for life and our supreme leadership labor council decides what everybody gets paid. Perhaps we should thank our greedy forbearers.

The stimulus was great for poor kids while it lasted. Now even bare-bones aid is at risk.

About the Author

Jared Bernstein is an economist and senior fellow at the Center on Budget and Policy Priorities. He was formerly chief economist to Vice President Joe Biden and a member of President Barack Obama’s economics team.